As we gradually come close to the reality of the massive launch of BTC spot ETF trading across over 30 applications, a lot of questions has been raised about what this could eventually result to for the crypto ecosystem such as:
- What will happen to liquidity of BTC on exchanges?
- Does a spot ETF trading allows for manipulation of the underlying token?
- Does this further entrench centralization in the crypto ecosystem?
LIQUIDITY CONCERNS ON EXCHANGES
It is believed that once BTC spot ETF trading goes live, more supplies will be added to BTC as paper currency traded only on the stock exchange. This will attract institutional investors and increase the the TV on stock exchange and lead to shifting of attention away from exchanges. This will lead to decrease in BTC liquidity on exchanges. But the fact that the price of ETF depends on the price of the underlying coin makes it almost impossible to ignore liquidity on exchanges. Some of these big institutional investors will have to buy BTC and HOLD or trade them to influence its price action.
So, we are definitely gonna see increased liquidity on exchanges that will encourage crypto natives to trade and HODL BTC.
PRICE MANIPULATION CONCERN
One of the concerns raised by SEC is the manipulation of BTC price by investors. They argue that investors like Banks will be encouraged to buy a large percentage of BTC and lock them away to artificially increase the price of BTC or vice versa. That again is not possible because the Proof-of-Work consensus does not allow for a single holder to hold as much BTC as SEC would imagine (remember the issuer is not the same as the holder).
The issuer are the block miners who gets rewarded by a block of BTC while the holders will have to buy the issued BTC on exchanges or through P2P.
CENTRALIZATION CONCERN
To ensure true and absolute centralization of BTC, you need to look at the underlying coin transaction and its process not the ETF. True, ETF can be centralized as transactions are carried out in financial institutions and CEXes but BTC transactions are done on the blockchain and does not give room for divulging of sensitive user info like name, location and biometric identity of the user.
Nevertheless, it is important to note that Blackrock have issued a statement saying they will now begin the process of converting their Grayscale Bitcoin (GBTC) trust fund to BTC spot ETF and will be engaging SEC for eventual approval of the application.
Let me know what your thoughts are on this in the comment section. Thank you and have a blissful week!
The image used here was extracted from CoinTelegraph